10.1.3 Tools of Analysis and their Summary in the Second Assessment Report

10.1.3.1 Tools of Analysis

A wide variety of tools have been applied to the climate problem. These are
enumerated and briefly described in Table 10.1. In general,
these tools help decision makers in several wayschoose a policy strategy,
understand the implications of alternative policy strategies, understand the
joint interactions of multiple, individual policy strategies. The tool can be
employed by either a single decision maker or by stakeholder groups. Their quantitative
nature and their ability to incorporate the global, long-term diversity of relevant
human activities, the uncertainty, and the irreversibility characteristics of
the problem mean that decision frameworks have been broadly applied to the climate
problem. This approach has several special cases, which have themselves received
broad attention, including costbenefit analysis and cost-effectiveness
analysis. We review progress in these areas later in this section, after the
SAR and the tolerable window and/or safe landing (TWSL) work.

Other tools have also been employed or have the potential to be employed to
help illuminate decision making. These include game theory, portfolio theory,
public finance, culture theory, and simulation exercises, and are discussed
in the body of the chapter.

Decision analysis is a formal quantitative technique for identifying best
choices from a range of alternatives. Decision analysis requires the development
of explicit influence structures that specify a complete set of decision
choices, possible outcomes, and outcome values. Uncertainty is incorporated
directly in the analysis by assigning probabilities to individual outcomes.

G, L, H, U, IR

Virtues include quantification of results, reproducibility of analysis,
ability to incorporate the full dimensionality of the climate problem
explicitly.
Limitations include the assumptions of:

A single decision- maker, with well- ordered preferences, who is
expected to be present throughout the period of analysis.

The number of alternatives is finite and therefore limited in practice.

Outcomes must be comparable  implying the need for aggregation
to a single set of common units, e. g. US$, lives, utility.

Rationality.

Uncertainties are quantifiable.

Cost benefit analysis

Estimates of the costs and benefits for selected decision variables are
derived. The best outcome is the one with the highest net benefits.

G, L, H, U, IR

This is a special case of general decision analysis.

Requires an explicit mechanism for valuing costs and benefits across
time.

Cost- effectiveness analysis

Accepts specific performance goals as given exogenously, then minimizes
the cost to achieve the desired performance.

G, L, H, U, IR

This is a special case of general decision analysis.

Requires an explicit mechanism for valuing costs and benefits across
time.

Provides no information about the selection process. For example,
analysis might accept a fixed CO2 concentration ceiling as
specified exogenously, but cannot comment on the desirability of that
choice.

Tolerable windows and/ or Safe landing approach

Accepts specific performance goals as inequalities given exogenously,
then enumerates paths that are consistent with the goals.

G, L, H, U, IR

Provides no information about the selection process. For example,
analysis might accept a fixed CO2 concentration ceiling as
specified
exogenously, but cannot comment on the desirability of that choice.

The analysis does not provide a best path.

Game theory

Provides information about the implication of multiple decision- makers
choices, taking into account expectations that each has of their own actions
on others, and others actions on them.

G, IN

Technique is descriptive rather than prescriptive. It offers information
about potential outcomes within a specific context.

Portfolio theory

Concerned with creating under a budget constraint an optimal composition
of assets characterized by different returns and different levels of risks.
Decision options (portfolio elements) are represented by a probability distribution
of expected returns while risks are estimated on the basis of the variability
of expected returns, and only these two factors determine the decision makers
utility function. The decision rule is to choose the efficient portfolio
compared to which no other portfolio offers higher expected return at the
same or lower level of risk or lower risk with the same (or higher) expected
return.

G, L, H, IN

Application to climate change problem has been limited.

Public finance theory

Encompasses a variety of research techniques including the theory of the
second best.

IN

Examines trade- offs between efficiency and other criteria.

Ethical and cultural prescriptive rules

Concerned primarily with the implications of alternative social organizations.
Has had limited application to the climate problem.

IN

Used to consider explicitly the interactions between policy instrument
choice and social structure.

It is non- quantitative.

Policy exercises, focus groups, and simulation gaming

Includes a suite of research activities that have been used to assist
in the decision- making process. In general, groups examine potential outcomes
by playing a role in a simulated decision- making environment.